Sunday, June 18, 2006

An Excellent Article on Adam Smith by Eamonn Butler

Eamonn Butler is the Director of the well-known Adam Smith Institute in London and a leading advocate of Smithian informed ideas of practical value for the public, generally, and consumers and families particularly. He is a staunch believer in freedom and is ever vigilant about threats to liberty in the UK (especially emanating from government and the European Union).

In today’s The Business, as its name implies a business oriented newspaper, and one I read regularly, Eamonn Butler has an article on Adam Smith (of whom he knows better than most), which addresses an aspect of recent efforts in the UK to convince the wider public that if Adam Smith was alive today he would support the Labour Government and its ‘New Labour’ policies.

These efforts are usually linked to the UK Chancellor, Gordon Brown, though how much of it emanates from his office I could not speculate, but Eamonn Butler suggests that Gordon Brown is behind it all, and as one of the best informed people in the immediate vicinity of the Westminster village, Butler would know

The Business 18 June: Eamonn Butler writes:

“Picking a fight over whether Adam Smith was a Scottish socialist or an outrider of ­laissez-faire capitalism is, however, rather unedifying. Smith’s ideas may contain lasting truths, but they were formed in his own age, not ours, when the world was very different. He has little to say about our ­modern concerns (such as democratic government, state healthcare, emissions trading, incapacity benefit and income tax) largely because they did not exist back then.”

Excellent. Absolute right and many commentators, including academic economists would benefit from remembering Eamonn’s point.

A second argument in the attempt to ­rebrand Adam Smith is that he did not really mention the “invisible hand” very much – maybe three times in a million words. And even then he does not use it as an argument for laissez-faire – that things will work out fine, whatever excesses people get up to.

This again is quite true. But even if Smith had not used the phrase at all, his work in general stands in the long tradition of thinking, identified by the late Nobel economist F A Hayek, that order can exist without commands. The twists and turns of a flock of birds, the efficient industry of an anthill, do not depend on some one individual telling the others what to do. Likewise, the market is an example of order without commands. A shortage of some product is reflected in higher prices, which in turn induce people to produce more. The lack of an authority does not produce chaos: it does not require a regulator to rule that more is needed and to tell suppliers to step up their production. That, of course, would be socialism

Here I have a qualification. I always draw attention to the facts that modern association of the metaphor of the invisible hand with Smith’s theory of markets is not just a factual error, but historically a doctrinal one too.

Smith’s theory of markets is perfectly clear without reference to mystical invisible hands. Markets are not mysterious or even ‘miraculous’. Their workings are perfectly clear as the price example Eamonn gives demonstrates, and Smith made clear in Wealth of Nations, Book I. That is why Smith never used the metaphor (from Shakespeare’s Macbeth in 1605 and Defoe’s Moll Flanders in 1722, and no doubt elsewhere) in relation to markets. If he thought there was a benefit in doing so he would have done so. He didn’t, so that was not an intention of his and the words were literally put into his mouth by people in the 19th and 20th centuries.

Smith did have a theory of unintended consequences. It was very important to his entire writings beginning with his essay on the History of Astronomy (1744-48?), his Theory of Moral Sentiments (1759), his essay on the Formation of Language (1761), his Lectures in Jurisprudence (1752-64) and his Wealth of Nations (1776).

For an excellent survey of its role in his work, see James Otteson’s Adam Smith’s Market Place of Life (Cambridge University Press, 2002), possibly the most significant original piece of work on Adam Smith in the past twenty years.

Now, if Eamonn is suggesting that the invisible hand is to be shifted from the incorrect ascription to Smith’s theory of markets to Smith’s theory of the unconscious, unintended, unplanned, and undirected actions of separated individuals acting in their self-interests, he has noticed a possible analogous use of the metaphor but not one that Smith used.

Jim Otteson also noted the analogy (p 267) but reminded readers that the events and the outcome (a language, a market, a code of morals, etc.,) are ‘coincidental’, and probably become appear to be linked by ‘something’ because ‘it is often difficult for philosophers to accept the possibility that an elaborate, sophisticated institution – like a language – could have developed with no overall rational design because their own preoccupation with rationality leads them to see it at work in any complicated system.’ We see the same thing in the biological sciences in the diversionary mystical nonsense of ‘intelligent design’ (who ‘designed’ the ‘designer’?).

I agree with Jim Otteson and further I think that misapplying metaphors creates the wrong impression about the wonder of human social evolution by attributing mystic ‘invisible hands’, or worse, ‘invisible gods’, to perfectly explainable processes. In another context, Smith called such attributions ‘pusillanimous superstition’ and the habits of mankind in conditions of ignorant savagery.

In any case, Smith did not advocate ­laissez-faire, but a free, competitive, market economy.”

Agreed. He never used the words, but so many economists assert adamantly that he was in favour of laissez faire, particularly when defending business activities from any regulation or supervision whatsoever, they open a flank to those who want to re-construct Smith as a socialist. As Eamonn and I do not want to expose flanks in our presentations of what Smith said when he didn’t, I suggest we make this point clear as often as is necessary.

Next time I meet Gordon Brown I will remind him of this point and also the subsequent points that Eamonn goes on to make about ‘free, competitive market economies.’

Overall, an excellent article and congratulations to Eamonn Butler of the Adam Smith Institute for writing it – and to The Business for publishing it.


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